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Tax refund made easy by Delhi High Court
August, 05th 2013

Revenue authorities have their own targets for tax collection. The targets are often based on the collections made in the earlier year without any regard to the estimated actual profits to be made by the tax payers. The tax officers are so obsessed to meet their targets that they do not hesitate to take coercive measures to collect more and more amount from the assessee.

A situation often arises when the income-tax department raises a demand for tax from a foreign enterprise which the foreign enterprise pays even if it does not agree with the department. If the foreign company pays the disputed demand, then, upon success in appellate proceedings, it will get a refund along with interest.

Further, income of foreign companies is generally subject to deduction of tax at source. The procedure for tax withholding is such that in innumerable number of cases more amount of tax is withheld than what is actually payable by the foreign company. The foreign company certainly becomes entitled for refund of such excess tax. However, this creates practical difficulties, particularly in those cases where the foreign company goes back from India after completing its work here. There is, therefore, no dearth of cases when the refunds due to foreign companies remain unclaimed.

It is unfortunate that the claim of refund is often denied by the tax department because of many technical reasons despite there being no fault on the part of the tax payers. Some of the reasons are discussed as under:

The tax deducted at source (TDS) claimed by the tax payer does not match with the details uploaded by the TDS Deductor.

Refunds are being adjusted against the past arrears due from the assessee. The adjustments are made without giving any opportunity of being heard to the assessee.

In many cases, intimation under section 143(1) is not served on the assessee and subsequently, on enquiry by the assessee for refund, it is informed that their refund has been adjusted under section 143(1). Section 143(1) provides for serving of intimation by the department specifying the amount of tax payable/refundable to the assessee based on return of income filed by assessee.

In addition to this, even if the above discrepancies are rectified in the record of the department, the department is reluctant in granting interest on such refund.

Due to seriousness of the aforesaid issues a public interest litigation (PIL) was filed before the Delhi High Court. The problem was apparent, real and enormous and had escalated because of centralised computerisation in the tax department. The Delhi High Court vide its decision dated 14.03.2013 in the case of "Court on its own motion v CIT" issued various mandamus to the income-tax department to sort out the aforesaid issues as under:

There have been instances where due to negligence on part of those deductors who have TDS, assessee has to face problems in getting TDS credit. Therefore, a direction was given that claims of TDS by an assessee cannot be denied in such cases where TDS has been deducted and paid.

Where refunds have been fully or partly adjusted against the past arrears, the procedure u/s 245 should be followed. The assessee should be given an opportunity to file his response which should be considered by the Assessing Officer (AO) before any adjustment of refund against past demands is made. Section 245 provides that before adjusting any refund against the amount due from assessee, an intimation in writing to such assessee be given.

Where intimation u/s 143(1) has not been served on the assessee and there was no valid reason for not serving the same, then such intimations are not valid.

Interest on refund cannot be denied if the assessee is not at fault.

It is heartening to note that the Central Board of Direct Taxes (CBDT) has issued necessary instructions in order to implement the decision of the Delhi High Court. The instructions issued by CBDT pursuant to the decision of the High Court are as under:

In Instruction No 05/2013 dated 08.07.2013, it was directed that when an assessee approaches the AO with requisite details and particulars in the form of TDS Certificate as an evidence against any mismatched amount, the said AO will verify whether or not the deductor has made payment of the TDS in the government account and if such payment has been made, credit of the same should be given to the assessee.

In Instruction No 06/2013 dated 10.07.2013, it has been directed that the exercise desired by the High Court relating to section 245 be carried out by August31, 2013 positively.

Instruction No 04/2013 dated 05.07.2013, provides that the exercise desired by the High Court relating to section 143(1) be carried out by August 31, 2013 positively.

In Instruction No 07/2013, it has been provided that in no case interest can be denied to the assessee where the assessee is not at fault.

The judgment of Delhi High Court (supra) read with clarifications/directions issued by CBDT is of paramount importance not only for following up the claims of refund of tax which are already due but also for filing fresh claims for refunds wherever tax paid or withheld exceeds the actual tax payable.

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